Investor Relations, Earnings Quality, and Meeting Expectations
Posted: 27 Sep 2014
Date Written: September 25, 2014
Abstract
Despite the prevalence of IR among firms and its role as the functional area dedicated to financial communications, we know little about the relationship between IR and financial reporting quality. This paper examines the earnings management choices of firms with a professional IR presence. I find that these IR firms are associated with less earnings management behavior both broadly and around the earnings objective of meeting analyst expectations. Although IR firms are more likely to meet analyst expectations, I find that IR firms rely more on expectations management and less on upward earnings management. Collectively, the results imply that firms with professional IR may be better positioned to manage capital market pressures without compromising financial reporting quality.
Keywords: Investor relations, financial reporting quality, earnings management, expectations management, meeting analyst expectations
JEL Classification: D82, G10, M40, M41
Suggested Citation: Suggested Citation